San Bernardino will pay the holders of its pension obligation bonds 40 cents for every dollar they’re owed, reducing the total payments to its second-largest creditor by about $45 million, according to a settlement between the bankrupt city and that group.

“The POBs were contending that they should be paid in full, and although we felt on the merits of the issue that we had a very strong position, there was still the possibility that we would have to pay that,” City Attorney Gary Saenz said by phone Wednesday. “That litigation would have been very cumbersome and time-consuming.”

Indeed, the last year of bankruptcy hearings have often featured a clash between “Wall Street” and the city, with a greater battle over the city’s plan to exit bankruptcy widely expected if some settlements weren’t reached.

According to the nine-page settlement agreement, those creditors — the Luxembourg-based bank known by its initials, EEPK, and Ambac Assurance Corp. — will drop their litigation against the city and release it from any future liability related to the pension obligation bonds.

They also agree to support the city’s amended disclosure statement — the document detailing the city’s financial position due to bankruptcy court Wednesday — which they had earlier objected to parts of. And the bondholders, like the fire union in its recent settlement with the city, agree to support confirmation of the city’s exit from bankruptcy.

Saenz expects that final step in the bankruptcy process sometime in the third quarter of this year.

Then, beginning one year after the exit from bankruptcy, the city will begin paying the bondholders. The payments are structured over 30 years, and will total about $50 million — compared with roughly $95 million over the terms of the bonds, which the city agreed to when it issued them in 2005 to cover pension obligations.

“So over the stretch of the bonds, rather than 95 we’ll pay 50, in round numbers, which would make it $45 million in savings,” Saenz said.

That’s a savings of about $2 million per year, which could go toward increased policing, although the dollars aren’t guaranteed to go to that cause, Saenz said.

The settlement was reached in mediation under Judge Gregg Zive. The City Council approved the agreement in closed session March 21, with Saenz announcing at that meeting that a settlement was reached but not releasing the terms until Tuesday evening.

Effect on city’s bankruptcy case

The city now has settlements with the major parties that had threatened to stand in the way of confirming its bankruptcy exit plan, which require that those creditors now support the plan.

“By agreeing to those two settlements, the firefighters and the POB (pension obligation bondholders), that gave us almost a go-ahead to go the confirmation stage,” Saenz said. “Those two items of litigation would have been very cumbersome and very time consuming. It’s very satisfying and very gratifying that we know where we are with those two parties, and that’s very helpful in clarifying the city’s position.”

The city also reached an agreement with its largest creditor, CalPERS, in June 2014. That agreement, in which the city pays the pension system in full, ensures employee stability and gains the pension giant’s support, officials say.

The city also has agreements with other major employee groups, including the police union and the general unit that represents most San Bernardino employees.

But the deal with Wall Street is “immoral” in contrast with the treatment retirees have gotten, said Jeff Breiten, a retired police captain and president of a retired city employee association.

“For the record, the City of San Bernardino Retired Public Employees Association feels it is immoral on the part of the mayor and council to approve a settlement with ‘Wall Street’ for 40 cents on the dollar and only offer the retirees a penny on the dollar,” Breiten said in an email. “The PARS retirees made an offer to the city in January 2016 for an amount much lower than 40 cents on the dollar, and the city, as of today, has not even given the PARS retirees the courtesy of a response to that settlement offer.”

Breiten was referring to the city’s plan to end a supplement from a private firm called the Public Agency Retirement System that paid for up to 20 percent of the pension for 23 retired police officers. Instead, the city said in bankruptcy documents, it would distribute the $1.8 million in assets in that fund to the 23 officers.

The retired officers aren’t losing all of the PARS amount, Saenz said.

“And the much greater part of their retirement benefits is CalPERS, not PARS, and the city has obligated ourselves to protect and defend those CalPERS benefits,” he said. “To say they’re getting a penny on the dollar is not an accurate reflection of what they’re getting.”

Breiten countered that the CalPERS benefits go to all current and former city employees, including Saenz.

Breiten also said Mayor R. Carey Davis had promised during his campaign to protect the benefits of retired employees. Davis did not return a phone call.

Saenz said he wasn’t directly involved in negotiations, so he couldn’t speak to the allegation that the retirees’ offer hadn’t been responded to, but he said he remained hopeful the city could reach a settlement.

Ryan Hagen covers the city of Riverside for the Southern California Newspaper Group. Since he began covering Inland Empire governments in 2010, he's written about a city entering bankruptcy and exiting bankruptcy; politicians being elected, recalled and arrested; crime; a terrorist attack; fires; ICE; fights to end homelessness; fights over the location of speed bumps; and people's best and worst moments. His greatest accomplishment is breaking a coffee addiction. His greatest regret is any moment without coffee.

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